PPP Loan Forgiveness

Preliminary PPP Loan Forgiveness Guide for North State Bank Customers

Updated on June 12, 2020, based on the Paycheck Protection Program Flexibility Act (PPPFA).

While the SBA finalizes the forgiveness application, we have put together a guide with best practices to follow and documents to have available to submit. Note: This is preliminary guidance and is subject to change.

Preparing for loan forgiveness should begin as soon as possible—ideally, at the time the PPP loan is funded. Monthly payments for unforgiven balances will begin 10 months after the last day of the coverage period.  

Suggested Best Practices

  • Place PPP loan funds in a dedicated business checking account that is not used for any other purpose. This will make it easier to track and show fund usage.
  • Follow the SBA’s two primary guidelines to qualify for PPP loan forgiveness:
    • 60% of the PPP loan amount must be used for payroll costs. No more than 40% of the funds may be used for mortgage interest payments, rent payments, and utilities.
    • Funds must be used for qualifying expenses during the up to 24-week period beginning the day the loan funded (or December 31, 2020, whichever comes first). 

Documenting PPP Fund Use

  • Create a list of all employees on payroll for the coverage period funded by the PPP loan and their associated payroll costs. The coverage period begins the day your loan funded.
  • Retain verification of mortgage interest payments, rent payments, and utilities paid during the period covered by the PPP loan, such as copies of canceled checks, bank statements reflecting associated ACH transactions, utility bills, mortgage statements, and the lease agreement outlining terms, etc.

Documenting Employees and Payroll

Employers will need documentation showing the same number of workers were kept on payroll or rehired once PPP loan funds were received as were on payroll during the comparable period (as defined below). Employers can prepare a calculation of the average monthly number of full-time equivalent employees from either:

  • February 15, 2019 through June 30, 2019
or
  • January 1, 2020 through February 29, 2020
The employer may select which time frame they choose to use as the comparable period based on their circumstances.

To qualify for PPP loan forgiveness, the monthly average number of full-time employees on payroll during the coverage period following the date the PPP loan funded must be equal to or greater than the monthly average number of full-time employees for the employer-selected comparable period.

For example, XYZ Company had:
  • 52 monthly average full-time employees from February 15, 2019, through June 30, 2019
  • 48 monthly average full-time employees from January 1, 2020, through February 29, 2020
  • 50 full-time employees receiving payroll for the eight-week period beginning the day their PPP loan was funded on April 17, 2020.

XYZ Company chose the comparable period of January 1, 2020, through February 29, 2020, to meet one of the PPP loan forgiveness guidelines.

 Other Documentation to Have Available

  • Copies of paperwork submitted to North State Bank for your PPP loan application.
  • Evidence of pay restoration within the 24-week coverage period or by December 31, 2020 (whichever comes first), to any employee whose pay was reduced by 25% or more.
  • Evidence your organization was in business on February 15, 2020, and paid employees or independent contractors (Payroll Tax Filing for 1st quarter 2020).
  • Evidence of payroll costs, utilities, rent/lease payments, and mortgage interest paid before February 15, 2020, to compare to what is paid or incurred during the eight-week period following PPP loan funding. For those who are self-employed, these expenses are allowed to the extent they are deductible on Form 1040 Schedule C.
  • For self-employed individuals, the forgiveness amount for the owner’s compensation is limited to eight weeks’ worth of 2019 net profit and does not include covered benefits. It also excludes any qualified sick leave equivalent amount for which a credit is claimed under section 7002 of the Families First Coronavirus Response Act (FFCRA) (Public Law 116-127) or qualified family leave equivalent amount for which a tax credit is claimed under section 7004 of FFCRA (similar rule as applies to employers for pay for time for which a tax credit is claimed under FFCRA).

 Note: If PPP loan funds were used to refinance an EIDL, only the funds used for payroll costs will be forgiven, so be prepared to provide the documentation listed above for the EIDL loan, too.

Click here for more information about the PPP from the United States Department of the Treasury.